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Google takes Widevine, committed to the premium content business

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| 12月 08, 2010

A lot of the analysts that follow Google have been recently focusing on Google’s intention to acquire Groupon, an Internet collective purchasing site. While the talk between Google and Groupon has stalled with Google’s bid being rejected, the Internet search giant still managed to do some shopping for the holiday season. It has grabbed Widevine for an undisclosed amount, a Digital Management Rights (DRM) solution provider which has been on Strategy Analytics radar for a long time.
As DRM business isn’t something that is interesting to consumer media, the discussion on media about this acquisition is far less than that about the Groupon deal. But as important as Widevine’s role in the premium content distribution value chain, this acquisition isn’t just discretionary spending for Google and it demonstrates Google’s dedication to be involved in the premium video content business. Widevine explains itself to be capable of doing three things: Multiplatform DRM, Enabling TV Everywhere and video optimization. These are all of great importance for Google in relations to premium video business.
YouTube has been growing as the bellwether in the user generated content (UCG) business in terms of video views, while the profitability issue of UGC is still something that YouTube needs to overcome. With the DRM capability provided by Widevine, YouTube is more likely to obtain serious premium content which could markedly beef up the money-generating capability of the popular web video site. And given Widevine’s credibility for helping pretect content for Hollywood studios, it makes studios more eased to partner with Google in the video business, which has been regarded as the major disruptor for the traditional media businesses. The more premium content availability will also enhance Google TV’s competitiveness in the market, which has been reported having trouble to get deals with major Hollywood studios and being forced to cut the price for the new Google TV-embedded gadgets. Moreover, Widevine’s know-how in delivering video content to multiple platforms will benefit its Android system as well, by enabling the Android phones more securely and easily getting access to premium videos.
While these implications are all positive, the acquisition of Widevine is far from a home-run for Google to succeed in the premium video distribution business. Significant challenges lie ahead that seem quite unaddressable for Google in the short term. From a revenue perspective, Google is a advertising driven company that controls online content distribution and ad distribution. Small online content creators are in a weak position to negotiate ad revenue terms with Google, whereas Hollywood studios mandate a close supervision on their ad operations. Even Hulu, the joint venture by the three major networks, has to compromise to the networks’ own sales operation when it comes to premium ad inventory sales and management. The fight over control of ad operation will be a key obstacle for Google and Hollywood to overcome before a long-term solid partnership being established.
In addition, some analysts speculate that Google might be planning to offer Widevine service for free to content providers. This idea is pretty in line with Google’s Everything-free strategy, from online search to smartphone to TV strategy. It clearly will lure many content providers at least to try to start relationship with Google and potentially will shake up the entire industry. But such a drastic shake-up could result in backlash from industry incumbents and arouse anti-competition concerns.
It would also be expected for Google to introduce a Google-branded video store or service in the future, armoring the tech giant in the battle with Apple, Amazon and Netflix.
-Jia Wu